BUENOS AIRES, Sept 6 (Reuters) - Argentine businesses are warning President Mauricio Macri’s government that a fiscal reform planned for after October’s mid-term election must significantly cut their tax bills even as it strives to preserve government revenues.
Macri himself says high taxes are holding back much-needed investment after a decade of populist policies spooked companies, and recently told reporters taxes are “killing us.”
But his administration has little room to lower taxes as it also pledged to slash the fiscal deficit by 1 percent of gross domestic product by the end of next year.
A Treasury Ministry official told Reuters last week the reform’s main goal was not to lower overall tax collection, which is above most Latin American peers at about one-third of GDP. Rather the reform will try to widen the tax base by clamping down on evasion and informal employment, enabling “gradual reductions” in “distortive” taxes.
Argentina’s value-added tax of 21 percent is above the global average of 15.7 percent and 13 percent in Latin America, while its income tax of up to 35 percent compares with 24.29 percent globally and 27.98 percent in Latin American, according to data from consultancy TMF Group.
“We completely agree with formalization, but this level of tax burden is inviable,” said Daniel Funes de Rioja, vice president of the Argentine Industrial Union, which was briefed by government officials on the planned reform last week.
“We’re trying to accelerate those measures that can have immediate impact on competitiveness,” he told Reuters.
The Treasury official declined to provide specific details of the planned reform. The government will negotiate the reform with opposition lawmakers toward the end of the year, Federico Pinedo, the provisional president of Argentina’s Senate and a Macri ally, told Reuters in an interview last week.
“It’s clear that businesses and politicians want a fiscal reform, but it’s hard to do that without talking about public spending,” Claudio Cirocco, head of accounting, tax and legal administrative services for TMF in Argentina, told Reuters in an interview on Wednesday.
While Macri’s market-friendly “Let’s Change” coalition is not expected to win a majority in either chamber of Congress in the Oct. 22 vote, a strong performance would provide momentum to the rest of its reform agenda.
“We must lower taxes, beginning with the most distortive ones,” economist Jose Luis Espert said in a Wednesday presentation at the Argentine-American Chamber of Commerce. “Without lowering taxes, the tax reform is irrelevant.” (Additional reporting by Nicolas Misculin; Editing by Caroline Stauffer and Sandra Maler)